PRACTICE MANAGEMENT
In what seems like two steps forward, one step back, the
U.S. rose two spots to No. 16 among developed nations for retiree wellbeing in
the 2020 Global Retirement Index (GRI).
Now in its eighth year, the GRI, which is compiled by
Natixis Investment Managers, shows that the U.S. moved up two spots because of
better scores in the material wellbeing (26th )and quality of life (21st)
sub-indices.
The GRI provides a snapshot of the relative wellbeing and
financial security of retirees in 44 countries, based on 18 factors which
influence retiree welfare across four categories, including finances in
retirement, material wellbeing, health and quality of life.
Within material wellbeing, the U.S. improved its ranking in
the unemployment indicator from 15th to 11th. Its ability to reduce income
inequality improved slightly, although it still ranks seventh from the bottom
globally, despite ranking in the top 10 (6th) for income per capita.
The U.S. also stepped up in quality of life, with an
improvement in the happiness of its retirees, and held steady on environmental
factors, though it still holds the ninth-lowest rank in this indicator.
In the finances-in-retirement category (11th), an improvement
in the interest rates indicator offset declines in the tax pressure and old-age
dependency (the ratio of retirees to working adults) indicator rankings. A
lower life expectancy ranking contributed to the U.S. dropping out of the top
10 in the health category to 16th, though it continues to have the highest
score for health expenditure per capita (average amount spent on health per
person) among all developed countries in the GRI.
One caveat the firm notes is that the data used in the
calculation of the 2020 GRI include the most recent statistics available,
typically from 2019. As a result, more recent developments resulting from the
Coronavirus pandemic are not necessarily reflected in this year’s rankings.
Still, Natixis notes, its analysis of multi-year index
trends suggests that the pandemic and policy actions taken to moderate its
economic impact will have lasting implications for retirees. Retirement
security in the U.S. and developed nations around the world now faces elevated
threats of lower-for-longer interest rates, record levels of public debt,
recession, income inequality and climate quality, the report notes.
5 Threats to Retirement Security
In a supplemental report to the 2020 GRI, What Could
Possibly Go Wrong?, Natixis identifies five specific issues that the firm
believes present the greatest threats for retirement security in the future.
The long-term impacts of the recession on savings: The speed
and severity of the global economic slowdown stemming from the COVID-19
outbreak are greater than those in recent recessions. Resulting measures taken
to cover income shortfalls may dampen the savings needed for future retirement
security. For instance, workers may make hardship-based early retirement
withdrawals that are never replaced, and employers may reduce or suspend
matching contributions to DC plans, steps that may become permanent.
Falling interest rates disadvantage retirees: Rates in the
U.S. and other nations have been at historic lows for a dozen years, but
central bankers lowered them further as part of stimulus efforts. Lower rates
may require individuals and institutions alike to be more creative about how
they prepare to meet longer-term needs and commitments.
Fiscal stimulus raising public debt: The $12 trillion of
fiscal and monetary stimulus provided globally has kept economies afloat during
the COVID-19 pandemic, but will magnify already high levels of public debt.
While low interest rates keep debt servicing costs manageable today, those same
low rates may tempt policymakers to boost spending, further increasing public
debt. In order to control spending in the future, governments could be forced
to raise taxes, including on retirees, and reduce funding for retiree
healthcare programs and public pensions.
Climate-related disasters threatening retirees: As seen in
recent wildfires, typhoons and hurricanes, climate-related natural disasters
are becoming more frequent and more severe. Air pollution is also worsening,
posing greater safety and health risks for vulnerable retirees, including
chronic cardiac and pulmonary illnesses. Such disasters also have financial
implications, including higher insurance costs, increased food expenditures and
greater housing expenses as storm severity grows.
Inequality worsens economic outcomes: The issues of
inequality—of race, gender and other factors—have come to the fore in the U.S.
and other nations. Natixis notes that research globally illustrates race and
gender gaps in both worker pay and access to workplace retirement plans, with
implications for inequality in retirement income. Lower lifetime earnings and
contributions to savings can result in imbalances that last past the working
years into retirement, with lifelong gaps in savings and income that, in the
case of women, are exacerbated by longer lifespans.
The Top 10
The top three nations worldwide in this year’s GRI are
unchanged from 2019, with Iceland in first place, Switzerland in second and
Norway third. According to Natixis, stability at the top is the norm, as nine
of this year’s top 10 countries have been in the top 10 for each of the past
two years. The other countries include Ireland (No. 4) the Netherlands (No. 5),
New Zealand (No. 6); Australia (No. 7); Canada (No. 8); Denmark (No. 9); and
Germany (No. 10). The only nation to depart from last year’s top 10 is Sweden.
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